For all those who are long the USD and short the 10Y, good luck because everyone else is too...
While talking heads and TV personalities reassure the investing public that low oil prices are "unambiguously awesome" for everyone, it seems the cracks in this narrative are starting to show. From falling wages, surging job cuts, plunging rig counts, and crashing capex, it's becoming a lot harder to 'pretend' that everything's fine. One wonders, when the companies themselves are slashing workweeks and cutting rig counts, when will 'investors' believe... perhaps now that Lynn Helms, Director of the North Dakota Department of Mineral Resources explains to the House Appropriations Committee that at least half of its shale regions are already below breakeven.
... things like a 50%+ drop in oil prices happen. Which at some point will lead more people to wonder what the real numbers are. For emerging nations, those numbers will not be pretty for 2015. They’re going to feel like they’re being thrown right back into the Stone Age. And they’re not going to like that one bit, and look for ways to express their frustration. Volatility is not just on the rise in the world of finance. It also is in the real world that finance fails to reflect. At some point, the two will meet again, and Wall Street will mirror Main Street. It will make neither any happier. But it’ll be honest.
Having previously warned that The Fed's "fixation with the markets has created a deadly trap," and recently noted that "Central Banking has lost its way," Stephen Roach unleashed a few minutes of painfully honest truthiness on an unsuspecting Kelly Evans at CNBC. The brief interview reiterates Roach's previous comments, as Tim Iacono notes, that "it didn't have to be this way." The Fed "is in total denial," Roach rants, adding that it "hasn't learned the lessons of what it put the world through a decade ago."
- Global Debt Crisis II – Total Global Debt to GDP Ratio Over 300% - Risk of Bail-Ins in 2015 and Beyond - Currency and Gold Wars - $1 Quadrillion “Weapons of Mass Destruction” Derivatives - Cold War II and New World Order as China and Russia Flex Geopolitical Muscles - Enter The Dragon – Paradigm Shift of China Gold Demand - Forecast 2015: None. Forecast 2020: Gold $2,500/oz and Silver $150/oz
In Harrison County, Ohio, drilling company worker Rick Lucente sums up all that is wrong with the mainstream media's narrative (puppeting even The Fed's great thinkers) about what great news low oil prices are... while his monthly gas bill for his Chevy pickup truck has dropped, he admonishes, "That’s not going to replace a paycheck... and I don’t know why this is happening." As the local mayor adds, the impact of the energy industry is widespread, oil prices affect almost every facet of their lives, from home values to roads to jobs.
While the trading world, or at least the kneejerk reaction algos, is focused on today's US nonfarm payrolls due out in just 2 hours (consensus expects 240K, with unemployment declining from 5.8% to 5.7%) the key event overnight came out of China, (where inflation printed at just 1.5% while PPI has imploded from -1.8% in September to -2.2% in October to -2.7% in November to a whopping -3.3% in December because as per BofA "soft domestic demand over-capacity issue have kept inflation pressures low") and Europe, after a Bloomberg report that as recently as Wednesday, ECB staff "presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets... options included buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said. Governors took no decision on the design or implementation of any package after the presentation." In other words less than two weeks before the fateful ECB meeting and Mario Draghi not only still hasn't decided on which of three public QE version he will adopt, but the ECB has reverted back to a private QE plan. Not surprisingly the EURUSD jumped back over 1.18 on the news (and USDJPY and stock markets dropped) on the news that Europe still is completely unsure how to proceed with QE despite the endless jawboning.
The entire theory of monetarism is coming undone in spectacular and empirical fashion, which leaves the entire status quo exposed. All that is left in defense is the same old refrain of “it wasn’t big enough.” That’s great for those in the ivory towers blinding themselves to the reality of a lost generation of Italians, Spaniards, French and now even Germans; a listing to which even the FOMC is worried may yet add Americans. Why anyone ever expected a different outcome is due solely to unrepentant ideology, since these central banks are following almost exactly the Japanese “model.”
Must be over-supply too, right? Just like oil prices... The Baltic Dry Index - which apparently is only relevant when it is rising - has never been lower at this time of year. Perhaps GDP expectations, bond yields, crude oil prices, and credit risk are on to something about the global economy after all?
"Your money is no longer yours. Big Brother and his entire Family is now here to stay... They are destroying everything that has been built in a fraction of the time it took to create it. Government also acts only in its self-interest and therein lies the problem. They are incapable of even contemplating that what they are doing is killing the world economy."
History literally appears to be repeating. The mainstream media and our politicians are promising Americans that everything is going to be okay somehow, and that seems to be good enough for most people. But the signs that another massive financial crisis is on the horizon are everywhere.
"We’ve read a lot of silly articles since oil prices started falling about how U.S. shale plays can break-even at whatever the latest, lowest price of oil happens to be. Doesn’t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they’ve put billions of dollars into won’t go broke because prices have fallen? This is total propaganda."
No reason to sell. No reason to buy. That about sums it up. Unfortunately, that is about as optimistic a scenario as we can come up with, supported by equally optimistic growth expectations. In reality, the market has no support. We can only hope that it will not crash at the first sign of trouble. There are always good reasons to own a home, a place to raise a family. However, home ownership via extremely leveraged financing carries enormous and unprecedented risk. We think many potential buyers recognize the risk and are correctly staying out of the market. The new normal in real estate terms is unlikely to be what the market is hoping for.
Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied. And the Dollar is rallying HARD.
"...we believe the current low crude oil price could be overkill and result in the next “Energy Crisis” by early 2016. Enjoy these low gasoline prices while they last."